By: Shannon Werbeck – Associate Attorney – Elville and Associates, P.C.
In initial consultations with clients, one of our main goals, among other things, is to determine which type of estate plan will best suit a client. The two main types of estate plans are a Last Will and Testament or a Revocable Living Trust. Once we determine which estate planning tool would best meet a client’s needs, we further customize and build on the plan based on the client’s current assets, goals and needs. Not every estate plan is alike and designing an estate plan can become overwhelming for a client – that is why we as attorneys are here to advise each client in a direction that will best suit their needs!
Most people are familiar with what is called a Last Will and Testament. A Last Will and Testament is a document that dictates what you want to happen with your assets and property at death as well as who you want to handle your affairs (your personal representative). It is only relevant to assets that do not contain a beneficiary designation and that are not jointly owned with a spouse or third party at death. If you own assets jointly with a third party or own assets individually but said asset contains a properly completed beneficiary designated (such as life insurance, 401(k), IRA, etc.), then at death your assets will be owned solely by that person.
A Last Will and Testament controls assets that do not fall into the category of being jointly owned or beneficiary designated and is therefore considered an individually owned asset with no beneficiary designation. In order for said asset to go from a deceased individual owner to the person meant to inherit the asset (the inheritor), it has to go through what is called probate. Probate is a court process of administering someone’s estate which has to take place when there is an asset with no living owner and no designated beneficiary. If probate occurs, then the court will inquire as to whether the decedent has a Last Will and Testament which the court will rely on when administrating the probate estate. Through this process your documents are open to the public to view at any time.
The administration process associated with a Last Will and Testament can take up to nine months, sometimes more depending on the size of the estate. It involves opening an estate with the Register of Wills Office, the probate process, which includes the filing of an inventory outlining what assets are part of the probate estate and allowing time for claims from any possible creditors who you may have owned money, as well as a filing of an accounting to display to the Register of Wills what is taking place inside of the estate. There are also costs associated with probate with the primary cost being payments to the probate court to process your documents, having to pay for professional assistance in filing final tax returns and even retaining the assistance of an attorney to assist with the probate process.
In some cases, clients wish to avoid probate. Many people have aversion to dealing with the court, the administration process or do not wish to have their documents open to the public eye. When an individual is motivated to avoid probate – that is when a discussion regarding a Revocable Living Trust plan occurs.
A Revocable Living Trust is essentially a substitute for a Last Will and Testament, and it accomplishes the goal of avoiding probate. It does not give asset protection or avoid taxes unless further estate planning is conducted. A Revocable Living Trust is similar to a Last Will and Testament in that it is an estate planning tool that designates the distribution of your properties and assets at death and the person(s) you wish to take care of the administration process (your successor trustee(s)). However, unlike a Last Will and Testament, a Revocable Living Trust comes into existence the moment it is created and is therefore relevant during life and at death. While you are alive, you are the grantor, initial trustee and beneficiary of your Revocable Living Trust and although your assets and properties will be aligned to the trust, you still have the ability to change anything in regard to your tax filings and have control over your money or ability to sell your properties – you are free to do whatever you want with your assets. Another way to view a Revocable Living Trust is as a “contract” that you sign and enter into with yourself as the initial trustee. You can change the terms of the “contract,” revoke it, restate it and amend it.
After a Revocable Living Trust is signed, we help you through a process called asset alignment, where our firm carefully reviews your assets and properties with you and ensures that certain assets and properties are properly titled to be owned by your Revocable Living Trust. While alive, there are two ways in which your assets will be held when doing a Revocable Living Trust Plan:
- Inside of your Revocable Living Trust where we help you change the owner of your assets and property, including but not limited to: your properties, cars, savings accounts, and Tangible Personal Property (jewelry, furniture, etc.).
- Outside of your Revocable Living Trust which includes your beneficiary designated assets, such as your 401(k)/IRAs and life insurance.
Asset alignment is a very important part of Revocable Living Trust planning. Signing a Revocable Living Trust in combination with asset alignment is what avoids probate. If this process is not conducted, then a client is essentially creating a more enhanced and expensive Last Will and Testament that will have to go through probate. Since assets will be owned by the Revocable Living Trust and not by an individual, there will not be anything required to go through probate and there will be no court involvement.
At your death, your Revocable Living Trust will become irrevocable and your successor trustees who you have named within the document will privately carry out the terms of the trust.
The reality is there is going to be cost and effort with either plan. With a Revocable Living Trust, the cost and effort are upfront so that there is less cost and effort at death, as there would be with a Last Will and Testament. A Revocable Living Trust is seen as being more streamlined and cost-effective in the long run than a Last Will and Testament with the court process of probate. The additional cost upfront for a Revocable Living Trust is attributed to the complicated process associated with a Revocable Living Trust which requires more work and effort during life so that in turn there will be less cost and effort required by your designated successor trustee at your death.
A Revocable Living Trust might not be the best option for everyone at this time, which is completely understandable. Our job is to advise clients what we believe is best for each individual or family. With that said, estate planning documents are not meant to last forever and should be reviewed frequently as assets, the people in our lives and Maryland law are forever changing. No matter what plan you decide on, our firm always ensures that your assets will flow properly during life and upon your death through your estate plan and that your documents, a Last Will and Testament or Revocable Living Trust, will best suit your estate planning goals and needs.
Shannon F. Werbeck is an Associate Attorney with Elville and Associates and an integral member of the firm’s busy Estate Planning Department. She educates and counsels clients through the entire estate planning process – beginning with the initial consultation, followed by the design and implementation of their plans, as well as the necessary maintenance and updating of their planning as changes occur in the laws and their lives. Shannon may be reached at firstname.lastname@example.org, or by phone at 443-393-7696 x148.